Vatican official arrested on suspicion of corruption, Rome prosecutor says

By Hada Messia and Laura Smith-Spark, CNN

Updated 9:30 AM ET, Fri June 28, 2013

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Headquarters of the Institute for Religious Works (IOR), the Vatican's bank, on February 18, 2012.

Story highlights

Prosecutor: The alleged attempt to bring cash into Italy was "extremely sophisticated"

A Vatican official and two other people have been arrested, the prosecutor says

The 3 arrests are not directly linked to a probe into the Vatican bank, he says

Pope Francis set up a papal commission this week to look at the bank's activities

A Vatican official, a financial broker and a former secret service police officer were arrested Friday on suspicion of corruption over an alleged attempt to smuggle a huge sum of cash into Italy, Rome's prosecutor said.

The official, Monsignor Nunzio Scarano, works as a financial analyst in the Vatican office that administers Vatican-owned property.

The archdiocese of Salerno, in southern Italy, issued a statement saying media reports identifying him as a bishop there were incorrect.

Prosecutor Nello Rossi told reporters the three suspects could face corruption charges, with Scarano also facing a possible count of defamation.

He stressed that the investigation is ongoing and that money laundering is not among the possible charges based on what investigators have uncovered so far.

The suspects were identified as a result of a larger investigation into the Vatican bank, also known as the Institute for the Works of Religion, Rossi said, but Friday's arrests are not directly linked to the bank.

The alleged offenses took place while the suspects were "attempting to illegally import from Switzerland large amounts of money in cash, to be considered the result of tax evasion," he said.

The alleged attempt took place in July 2012 but it was never carried out in full, he said, as the money never left Switzerland and never reached Rome.

Scarano and the two other suspects were trying at first to bring in €40 million ($52.1 million) in cash using a private plane, then the reduced sum of €20 million, he said.

Scarano is suspected of being the intermediary between the broker and former secret service policeman and the people who wanted the cash, he said.

The operation put in place to bring in the money was "extremely sophisticated," he said, in part because of the secret service officer's role in the plan.

Investigators are looking at transactions from two accounts Scarano held at the Vatican bank, one a personal account and the other used for donations, he added.

Vatican spokesman the Rev. Federico Lombardi said Scarano had been suspended from his work at the Vatican more than a month ago, as soon as his superiors had been informed that he was under investigation.

The Vatican is ready and willing to cooperate with Italian authorities on the investigation when they get in touch, he said.

Rossi has been investigating the Vatican bank's role and relationship with Italian banks for some years.

Papal commission

The arrests come in the same week that Pope Francis established a papal commission tasked with investigating the activities of the Vatican bank.

The commission, made up of four clerics and a Harvard law professor, will report to the pope with its findings "in view of possible reform," Lombardi said, according to Vatican Radio.

The Vatican has been plagued by internal power struggles over its murky finances for decades.

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On Wednesday, a financial watchdog agency established in 2010 issued its first report on money laundering, in a move to improve financial transparency in the city-state.

The document from the Financial Intelligence Authority shows six reports of "suspicious activity" in the past year, up from just one in 2011. It says the Vatican's prosecutors are investigating two of those reports for possible criminal activity. It wouldn't elaborate further.

The Vatican bank is also working to improve transparency, announcing earlier this month that it will launch a website to publish an annual report of its activities.

The bank serves thousands of Catholic charities, religious orders and dioceses around the world, in addition to roughly 500 people living in the tiny city-state. It has some 33,400 accounts and about $8 billion in assets.